Following its test of the $6 resistance on Monday, May natural gas futures finished the week on a four-day slide lower, closing 12.4 cents down on Friday at $5.610. Some analysts looked to the country’s current weather pattern, as well as the storage situation, for answers, taking into account Thursday’s slightly bearish EIA storage report.

The prompt month increased 6.8 cents Monday to close at $6.009, but recorded losses of 22.1 cents, 4.4 cents and 1 cent in following days.

“I think $6 historically is a very high price and gas storage inventory levels are pretty decent,” said Kyle Cooper of Citigroup. He noted that the EIA’s report of a 15 Bcf build the previous week — especially on a temperature-adjusted basis — was “pretty bearish,” and that bodes for a decent injection throughout the remainder of the season.

The 15 Bcf build exceeded the five-year average injection for the week of 9 Bcf and stood in complete contrast to last year’s 46 Bcf withdrawal. According to the EIA, working gas in storage as of the end of the previous week stood at 1,049 Bcf. The government agency noted that stocks are 407 Bcf higher than last year at this time and 57 Bcf below the five-year average of 1,106 Bcf.

“Starting from 1,050 Bcf or so, we are not in that much of a crunch when compared to last year,” said Cooper. “When you look at that against a $6 price, I think it was just finding difficulty — despite a stronger crude market — to move above it. I think that was really the overriding factor.”

Looking ahead to this week’s storage report, Cooper said his preliminary forecast is calling for the injection number to be a little higher than this week, adding that he wouldn’t be surprised if it came in a little above a 20 Bcf build.

“After registering solid gains last week, natgas futures have since retreated — largely weighed upon by easing heat loads and forecasts for mild near-term weather,” said UBS analyst Ronald Barone. “Despite this week’s retreat, worth noting is the overall level of contango in Nymex — illustrated by the $0.65/MMBtu spread between the May 2004 and January 2005 contracts.”

Barone added that he still believes that this sizeable differential will provide “strong incentives for arbitrageurs to inject now/sell forward, which could lead to a pattern of solid storage injections during the shoulder season to the degree that deliverability allows.” While not talking specifics, Barone said he too expects a larger injection report next week. Taking into account last year’s injection figure of 60 Bcf, the analyst said he “would not rule out a decrease in the surplus upon the release of the next EIA report.”

On the weather front, the National Oceanic and Atmospheric Administration (NOAA) said that virtually all parts of the contiguous United States experienced warmer than average temperatures in March 2004, noting that the global monthly average temperature was the second warmest on record for the month.

“Florida was the only state with a near-normal March temperature,” NOAA said. “The mean temperature in 17 western and central states was much above average, including New Mexico, which had its warmest March on record. An additional 30 states were warmer than average. The Southwest region as a whole had its warmest March on record.”

From May through July, the extreme West Coast along with the southernmost parts of the U.S. are expected to be 33-60% warmer than normal, with the largest increase to be felt in the Southwest, according to the NOAA’s new seasonal forecast. The remainder of the country has an equal chance of coming in with above, below or normal temperatures.

Looking more directly at May, NOAA forecaster A.J. Wagner said he expects above normal temperatures in the West, along with the central East from Texas north through the Great Lakes, but excluding the East Coast except for the tip of Florida. The forecaster looks for below normal temperatures in the upper Midwest. The remainder of the country has an equal chance of being above, below or normal.

“The area of above normal temperatures forecast over the lower Mississippi Valley and the Tennessee and Ohio Valleys is due primarily to [the Canonical Correlation Analysis (CCA) Tool]…with some support from [the Optimal Climate Normals (OCN) Tool] near the Gulf Coast and from one of the better models over the Ohio Valley,” Wagner said. He indicated that the “equal chance” rating was applied to a majority of Florida due to recent heavy rains.

“Below normal temperatures indicated over northeastern Montana…most of the Dakotas and the extreme upper Mississippi Valley are from OCN with support from some of the dynamic models,” he said.

Turning his attention to the West, Wagner said data for May points to above normal temperatures over the Southwest, Great Basin and the western slopes of the Rockies.

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